December 2006 Reserve Bank Bulletin released

The first article of this issue considers the role of core inflation
statistics and outlines a range of possible calculation methods. The article
sets out some characteristics that a core inflation measure might ideally
possess and then goes on to assess seven core inflation measures used at the
Reserve Bank in light of these criteria. Whilst there are trade-offs involved,
the article identifies three measures that appear to meet these criteria better
than the others. The Bank intends to report regularly on these three measures
in its future Monetary Policy Statements as well as publishing them on
its website.

Under the Reserve Bank's local incorporation policy, systemically
important banks are now required to incorporate locally to provide a degree of
assurance that the Reserve Bank would have the ability to manage a failure
affecting one of these banks. The second article provides an outline of this
policy and the rationale for it.

The third article briefly discusses the Reserve Bank of New Zealand Amendment
Act 2006, passed in October, which makes further amendments to the existing
Reserve Bank Act passed in 1989.

The fourth article describes changes to the liquidity management regime that
were implemented between July and October of this year, and notes that the
system appears to have been functioning more smoothly since the changes.

Finally, this issue includes the Editors' summary of the policy forum
held earlier this year to examine New Zealand's macro economic policy
frameworks and consider whether alternative, possibly non-conventional, policy
tools could be used to provide a smoother ride for the exposed sectors of the
economy over the business cycle. The full
conference proceedings and papers can be downloaded from the Bank's
website.

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